China says it will ban new online lending platforms
The Chinese Yuan, also known as the Renminbi.
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The Chinese government is stepping up scrutiny and instituting new measures for a once-booming online lending industry, where fund closures have sparked protests and even shut down a chain of convenience stores in Beijing.
The targeted industry is peer-to-peer lending platforms, which claim to connect investors with borrowers on the internet, giving money lenders the opportunity to generate income, while providing credit to many Chinese who cannot. not get bank loans.
The companies, also known as P2P, have taken advantage of a unique opportunity in the Chinese market, as banks historically do not lend to most consumers and small businesses due to the lack of a credit system. established credit rating. A lack of regulation in the sector has resulted in an increase in the number of platforms, which peaked at around 3,500 in 2015, but about half have since closed.
Authorities covering Internet financial and lending risks have now set 10 policy measures, such as banning new online lending platforms, the state-run Xinhua news agency reported on Sunday. Other measures include removing obstacles to customer complaints, increasing legal penalties against operators of fraudulent schemes and establishing payment plans for shareholders of bankrupt companies, according to the report.
Seventy-three percent of P2P platform failures since June have been due to liquidity issues, Citi analysts Daphne Poon and Judy Zhang said in a July 18 report. They predicted that less than 200 would survive in the end.
Analysts said the latest round of failures was likely due to three factors: an increasingly stringent macro-credit environment triggering defaults, rising compliance costs leading some platforms to voluntarily fold and a wave of panicked withdrawals from retail investors crushing platforms that were not well prepared.
The closures have had an impact on the real economy. In one case, convenience store chain Linjia had to shut down earlier this month after police began investigating its lone investor for staging a Ponzi scheme disguised as a P2P lending platform, reported. Chinese financial news site Yicai Global.
Last week, investors who lost money on lending platforms also tried to protest in Beijing’s financial district, but were forced to board buses by police.
However, social attention to the fallout has likely outstripped the widespread financial consequences at this time.
Despite the dramatic increase in P2P lenders in recent years to a massive 1.3 trillion yuan ($ 188.7 billion), their loan balances only account for about 1% of total system loans. banking, according to Citi.
P2P loan balance against outstanding system loans
Source: WDZJ, Citi Research